Do you have 529 accounts for your children or grandchildren? I had them for my kids and they were a tremendous help. President Obama used his State of the Union address Tuesday night to tout “middle-class economics” – including tax breaks for child care and free community college. But while it went unmentioned in his speech, the White House also is proposing rolling back a vital tax break for college savings plans that directly impacts the middle class. The proposal would change the tax treatment of so-called 529 plans, which allow college savings to grow tax-free. Under the change, Americans eventually would have to pay taxes on the earnings when they’re withdrawn. The College Savings Foundation, a nonprofit, warned the change would “undercut the effectiveness of 529 plans – the most effective and by far the most popular college savings vehicle available to middle income” families. A White House fact sheet on a range of new tax ideas, released over the weekend, described the current treatment as “upside-down education savings incentives.” According to the Investment Company Institute, there are close to 12 million 529 accounts open, with an average balance of $21,000. In all, Americans accumulated $245 billion in 529 plans in 2014. The 529 college savings plans allow families to invest without the earnings being taxed as long as the money goes toward paying for college expenses. If the president’s plan goes through, the earnings on new contributions would be viewed as ordinary income which is subject to taxes when withdrawn.
Posted on: Thu, 22 Jan 2015 00:31:34 +0000
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